That Girl !!

It was just another Monday... Waking up lazily on Mom's 4th threatening reminder... Utth bhi jaaa... Raat ko time se sota kyu nahi hai... Kal se khud uthna... then brushing the teeth sluggishly... the semi sleep mode gargles... Waning winters creating the standard scenes... like the cold water touch dilemmas in bathroom... To pour the mug or not to pour... then after a brave attempt of pouring the first mug over the head comes a sudden cloudburst of water... Yes... I did it :-P ... So, after all these morning dilemmas and lethargic show, i got ready for office with normal haste... Started my drive to office which was filled with usual morning rush to reach office. Tuned into my car's audio player, I was listening to my dated but "my kind of music" collection of songs. While I was listening to the songs, I was thinking about the long and hectic day which I had to encounter at the office. I stopped at a red light... and the next 90 seconds turned out to be a really thoughtful experience for me.

As soon as I stopped my car on the red light, a girl knocked my car window... my first thought... 8-9 year old Bhikhari. I do not generally entertain beggars... My preferences say, do not give them cash... if I need to... I give them something to eat but not cash... Some may agree or disagree on my preference.. But that's okay... I always keep a small stockpile of nano biscuit packets, so that I can give those to beggars. But strangely despite all poverty, I seldom find any beggars on my route. Most of the times, I find myself eating those biscuits when I leave from office late nights or get stuck in traffic snarls.

The girl knocked the window... I didn't open it... I showed her a biscuit packet from my dashboard. She nodded in refusal... I was not surprised, as some beggars prefer cash. Might be they need cash for some genuine reasons or they just want it for a smack of drugs. Whatever... she's a kid... lemme listen to her... I opened the window fractionally so that I can hear her. To my shock, she asked for water... I showed her my water bottle... she nodded in affirmation. I was simply stunned.

I handed over the bottle to her. And, she took it happily and turned back. I was again surprised, she didn't asked for any thing else after it... No money... No biscuit... nothing. Within those 90 seconds of red light halt, I felt like minutes of silence. I quickly pinched myself to shield myself from the bombarding thoughts. I quickly yelled... Oye rukk.... Ye bhi lele... And, I handed over the biscuit to her... She took it... Pom Pom... Car honking... And the signal went green.... (Oh, its Delhi.. Car honking before signal turns green just so normal).

And green was the signal for the mad traffic of thoughts honking in my mind.

• Poor state of beggars? Water Problems? Lost childhood? Child trafficking?
• So much water problem, that a poor child simply shuns the inherent childish greed for a cookie over water?
• Are they not even able to get one of the most basic necessities of life or rather I should say survival - water?
• Such shortage... even it was a waning winter season before the onset of draconian summers?

Don't have words for the thought provoking incident... I might take pride that I helped a poor girl to fulfill her thirst. But is it a matter of pride or a matter of shame? As we are busy in our usual lives... while bitching about our bosses... while cribbing about our work... while boasting about our achievements.. while discussing about Virat-Anushka saga... there are people who are living in such dismal state of affairs.

Should I be thankful of the wonderful life and opportunities that God has given me. Or, should I pity about the poor or probably water shortage or may be child trafficking. Or, should I do something and join some NGO to help poor. Or at the minimum, should I just act responsibly in my life while putting off that odd water tap.

I don't know... I simply don't know...

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Analyzing Customer Life Time Value

Customer Life Time Value allows benchmarking of companies and helps to analyze the efficiency of companies in generating returns through their sales and marketing spend.

Net Present Value (NPV) of Life Time Value / Cost of Acquisition

• NPV of Life Time Value = [PV (Discount Rate, Absolute Life Time years, – Annual ARPU Contribution) + PV (Discount Rate, Life Time years, 0, – Annual ARPU Contribution x (Fractional Life Time years))] – Cost of Acquisition

Represents the multiple of net return in present value terms which the company generates per unit of sales and marketing spend to acquire customers

a. Annual ARPU contribution = ARPU x Contribution Margin

b. Absolute Life Time Years = Life Time in Years excluding the decimal part = INT (Life Time Years)

c. Fractional Life Time Years = Fractional part of Life Time Years

d. Example:

• Life Time Years = 3.63 years

• Absolute Life Time Years = 3 [It is not rounding off but simple exclusion of fractional / decimal part]

• Fractional Life Time Year = 0.63 [It is simply exclusion of fractional / decimal part]

e. Discount Rate should ideally be WACC; but brokers assume a flat one rate across companies companies to benchmark

Return on Investment (ROI)

• (Life Time Contribution / Cost of Acquisition)^(1/Subscribe Life in Years) – 1

Represents the percentage annual return a company generates through its sales and marketing spend to acquire customers

Alternate Long Method: Alternatively, we can use XIRR formula in excel to calculate the Internal Rate of Return, by arranging dates / cash flow in tabular format in excel
a. XIRR (Cash Flow Range, Date Range, 0)
1. Cash flow from zero period would be Cost of Acquisition
2. Cash flow from remaining period would be ARPU Contribution for each of the "Absolute Life Time Years"

• While, the last year would be showing proportional ARPU Contribution for that year based on Fractional Life Time year

3. Number of years / date range would depend on Life Time years

• Absolute Life Time years will be at an interval of a year each starting from a particular date which would be zero year till "Absolute Life Time Years"

• While, the last year would be Fractional Year based on proportional days for that year based on Fractional Life Time year

Life Time Contribution / Cost of Acquisition

• Total Life Time Contribution / Cost of Acquisition

Represents the multiple of absolute return (without the impact of discounting and without subtracting Cost of Acquisition) which the company generates per unit of sales and marketing spend to acquire customers

Life Time Value as a Valuation Methodology

Life Time Value is used mostly for benchmarking companies to check the efficiency of sales and marketing spend. But some Wall Street brokers also use the methodology to value the company.

The brokers use NPV of Life Time Value and subscribers to value the company for arriving at the Enterprise Value.

Calculation

1. NPV of Life Time Value

x

2. Subscribers or Customers

=

3. Enterprise Value

Note: Number of subscribers is chosen by brokers for a forward year based on its assumptions just like a forward year for trading comps multiple.

Once arriving at Enterprise Value, we can easily arrive at a fair value per share by adjusting for net debt and dividing the resultant with number of shares.

(The above write up includes various excel formulas, so needs to be read in that context)

This write up deals with the analyzing the Customer Life Time Value in various respects. For introduction and the calculation of Customer Life Time Value, refer to the link below:

Customer Life Time Value - Introduction

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Customer Life Time Value - Introduction

Customer Lifetime Value (CLTV or LTV) can also be defined as the dollar value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship. CLTV is an important concept in that it encourages firms to shift their focus from quarterly profits to long-term health of their customer relationships. CLTV is an important number because it represents an upper limit on spending to acquire new customers. The purpose of CLTV metric is to assess the financial value of each customer. This is highly useful for analyzing subscription based (SaaS) companies.

Calculation

1. Average Revenue Per User (ARPU)

x

2. Gross Margin

x

3. User Life Time

–

4. Customer Acquisition Cost (CAC)

=

5. Customer Life Time Value (CLTV)

Average Revenue Per User (ARPU)

Total revenue during the preceding 12 month period divided by the average of the number of total customers at the beginning and end of the period (BoP / EoP)

a. Total Revenue / Average Customers during the period

b. Average Customers during the period = (Customers BoP + Customers EoP) / 2

Gross Margin or Contribution Margin

Estimated as the gross margin of the total revenue or subscription revenue

a. Revenue – COGS (Cost of Goods Sold)

b. Alternatively, Subscription Revenue – Subscription COGS (Cost of Goods Sold)

User Life Time

a. Average Life Time of Customer or Subscriber; or Average Contract Term (directly given in company filings)

b. Actual Cohort based calculation
1. The company sometimes gives cohort information. Eg: 20X1 customers stays with the company in the following manner

• Stays till 20X1: 40%

• 20X2: 20%

• 20X3: 10%

• Rest stays for 20X4 and beyond

2. We can analyze in following manner:

• 40% stays till 20X1 (means for 1 year) - Assuming 20X1 customers were since beginning

• 20% stays till 20X2 - for 2 years

• 10% stays till 20X3 - for 3 years

• Remaining (30%) stays till 20X4 and beyond - assume for 4 years

3. Life Time Calculation

• 40% x 1 year + 20% x 2 years + 10% x 3 years + 30% x 4 years

• Life Time = 2.3 years

c. Retention rate / Churn rate based calculation (preferable method)
1. Life Time (in years) = 1 / Annual Churn Rate
2. Annual Churn Rate = 1 – Annual Retention Rate (and vice-versa)
3. Annual Churn Rate = Monthly Churn Rate x 12 (and vice-versa)
4. Retention Rate sometimes given as renewal rate and churn rate sometimes given as attrition / cancel / turnover rate
5. Reverse Calculation can be done from Life Time to arrive at Churn / Retention Rates

Note 1: Monthly Retention and Rate is also APPROXIMATELY equal to: Annual Retention Rate ^ 12. Conversely, Annual Retention Rate is also APPROXIMATELY equal to: Monthly Retention Rate ^ (1/12)
Note 2: Monthly Retention Rate is NOT equal to: Annual Retention Rate / 12. Conversely, Annual Retention Rate is also NOT equal to: Monthly Retention Rate x 12
Note 3: We should preferably use retention rates. But sometimes, renewal rate and retention rate are used interchangeably. This serves the same purpose but there is slight difference in the manner of their calculations, which can cause slight variations in results.

• Annual Retention Rate is the percentage of customers on the last day of the prior year who remain customers on the last day of the current year

• Renewal Rate is the percentage of customers who renew annual or multi-year subscriptions that expire during the period

Life Time Revenue

• Average Revenue Per User (ARPU) x User Life Time

Customer Acquisition Cost (CAC) / Cost of Acquisition

a. Sales and Marketing Expense for consumer segment during the relevant period divided by Gross New Members for the period

• (S&M exp.) / Gross Adds

b. Alternatively, Sales and Marketing Expense divided by sum of Net Increase in Subscribers and Churn from old Subscribers - (This method is grossing up the net subscribers addition)

• (S&M exp.) / [Net Adds + Churn x (Subs BoP)]

Customer Life Time Contribution

• Life Time Revenue x Contribution Margin

Customer Life Time Value

• Life Time Contribution – Cost of Acquisition

This introduction deals with the basic meaning and the calculation of Customer Life Time Value. For further analysis of the Customer Life Time Value, refer to the link below:
Analyzing Customer Life Time Value

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Foodie Reviews

Having the possession of wandering taste buds, I like to try out different cuisines - strictly vegetarian / non alcoholic. Luckily I have partners in my crime who are always there to experiment along with me. I love to review the places I visit, food I eat and experiences I had.

In my quest to explore the flavors all around, I review the places I visit. I follow a simple methodology to review.

I use four key parameters on which I give rating on a scale of 5. A rating of 5 being the best and 0 being the worst. These include:

• Food: Taste matters and obviously its the most important ingredient of a perfect foodie review. This factors in the taste, hygiene, preparation and overall quality of the dishes. So, when I say 5, it means a real deal.
• Service: Service is also an important dimension for the review as some restaurants are innovative to not to keep you waiting - by offering complementary appetizers, while others are just so fast that they need any appetizers to keep the foodie busy. This factors in speed of delivering the order, staff friendliness, availability of multiple payment options, etc.
• Ambience: Restaurants now a days don't just offer food, they offer experiences to remember. Its an important factor to get the repeat customers. Surely an important factor for the fine-dine restaurants and would not be relevant for the take-aways.
• Value for Money: What's the use of eating out at a place if it leaves a deep hole in your pocket. Money matters - and of course, honey will taste sweeter if it comes at a right money. This factors in whether the entire experience for food, service and ambience is coming at a right price or not. Surely an important factor for the entire deal.

Overall Rating: Its simply the average of above 4 factors. Slightly up and down - of course, rounding off is part of the entire maths.

Summary: What's the use of numbers without a perfect commentary. This includes the summary of entire experience supporting all the maths above. Gives the subjective idea of the experience at a particular place.

My food journey can be checked out at my Zomato Profile

(or click the image below)

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